What The Planned Supermarket Merger Means For Union Bankhares

| About: Union Bankshares (UBSH)

Summary

Royal Ahold NV wants to merge with Delhaize Group pending FTC approval.

FTC is considering store divestitures to approve the deal, and many of Ahold's Martin's locations are on the chopping block.

Beyond FTC pressure, grocery competitors like Wal-Mart have been taking market share in the Richmond, VA area - putting even more pressure on Ahold and Delhaize.

Background

It was just confirmed this week that multiple locations of Union Bankshares Corp's (NASDAQ:UBSH) Union Bank and Trust locations would be shutting their doors by the end of September.

These closures are supposedly just "as the result of studies done on the market penetration in the Richmond area, which included looking at transaction volumes at each branch, the branch's deposit and loan size and the proximity of other branches."

All of the branches closing however are branches within Martin's supermarkets in the Richmond, VA area. This leads us to believe that Martin's closures are pressuring Union to close branches.

Supermarket Merger

Royal Ahold NV (AHONY) plans to merge with Delhaize Group SA (DEG). Pending FTC approval, this would be a massive combination of supermarket holding companies. Their holdings within the United States include:

AHONY: Martin's Food Markets, Stop & Shop, and more

DEG: Food Lion, Hannaford

In order to gain FTC approval for this proposed merger, there were a reported 19 Richmond area Martin's supermarkets going up for sale as part of an overall 80 stores (mostly Food Lion) in the Richmond area that would be on the chopping block. It was reported that Union would "expect the leases would carry over with the new owner" according to Bill Cimino , a spokesman for Union Bank. However, this is if the Martin's supermarket locations are not just closed.

Martin's Facing Competition

Last year, Martin's was ranked #1 by market share in the Richmond area for groceries. Not just last year, but the last three in a row! Given fierce competition in the Richmond area, Martin's may be pushed out of an area oversaturated with grocers. In fact, the competition from Wal-Mart combined with closures to appease the FTC has pushed Martin's from first place down to third in this year's most recent rankings for market share in the Richmond area. The top 5 for market share in the Richmond area according to Food World's June issue is as follows:

Company 2015 Ranking 2016 Ranking
Wal-Mart Stores' (NYSE:WMT) 2nd 1st
Kroger Co's (NYSE:KR) Marketplace 4th 2nd
Royal Ahold's Martin's Foods 1st 3rd
Delhaize Group's Food Lion 3rd 4th
CVS Health Corp. (NYSE:CVS) 5th 5th
Click to enlarge

(See full rankings)

More Union Bank Branches at Risk?

In March there were 18 Union Bank branches inside of Martin's supermarkets, out of a total of 124 branches. By the end of September, 5 of those Union Bank branches will be shut down. If all 18 were to shut down, that would be a roughly 14% reduction in branches for Union, potentially hurting accessibility and therefore business.

Just last week, Martin's announced the three respective closing dates for 3 of its stores by the end of July. If the Martin's locations all shut down rather than close, Union may have to shutter even more branches.

Conclusion

We will be monitoring this situation closely as news unfolds from any of the participants tangled in the Richmond, VA supermarket wars. As an aside, Union Bankshares did recently open a new loan production office earlier this month, indicating expectation of overall growth for UBSH.

References

"Union Bank to close 5 branches inside Martin's stores"

"Martin's reportedly selling its 19 stores in the Richmond area as part of merger"

"Union Bank expects to keep operating branches inside Martin's stores"

"Martin's announces July dates to close 3 stores"

"Walmart takes No. 1 spot in local grocery rankings; Kroger is second"

"Union Bankshares Corporation Opens Loan Production Office in Charlotte, North Carolina"

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